Managing Partner Interviewed for Law360 Article – Prepaid Carriers Challenge $5M FCC Fines Over Marketing


By Margaret Harding McGill

Law360, Washington (November 23, 2015, 7:13 PM ET) — At least three of six prepaid calling companies facing $5 million fines from the Federal Communications Commission over allegedly misleading marketing told the agency to rethink the fines in separate petitions filed Friday, arguing the FCC penalized them for violating rules that aren’t on the books.

The FCC hit the companies with the final fines in October, claiming that advertising posters for the calling cards did not clearly and conspicuously explain the actual charges that would be incurred for a call. The commission found that using misleading and deceptive marketing materials to sell the prepaid calling cards constituted an unjust and unreasonable practice in violation of Section 201(b) of the Communications Act.

But several of the companies said Friday that the commission violated their due process rights because none of the agency’s rules or orders provided adequate notice of such an interpretation.

“[E]ven if the agency can regulate the activity, it still must provide fair notice of the proscribed conduct before issuing a fine or other penalty,” Lyca Tel LLC said in its petition for reconsideration. “Prior to issuing the forfeiture order, the commission failed to do so.”

In addition to Lyca Tel, NobelTel LLC and Locus Telecommunications LLC have asked the FCC to reconsider the $5 million fine each is facing.

Jonathan Marashlian, who represents Locus, said Monday that the FCC may have broad authority under Section 201(b) to regulate the practices of a common carrier that it deems unreasonable or unjust, but it still has to make rules first.

“They have statutory authority to create rules around those practices and enforce those rules,” said Marashlian, managing partner at communications-focused Marashlian & Donahue PLLC. “The problem is that no rules have been created. There is no regulation detailing what marketing practice is reasonable or unreasonable. The lack of any regulation regarding a practice deemed to be unreasonable leaves the industry without specific notice of what may constitute a violation.”

Steve Augustino, a partner in the communications group of Kelley Drye & Warren LLP who represents Lyca Tel, said that it is not enough to say that the marketing practices violate the statute without providing clear notice of what companies must do and what is prohibited.

“This is a key element of fairness,” Augustino said. “It lets the companies know what conduct is required, and it protects against selective or discriminatory application of penalties.”

The companies also took issue with how the FCC landed on its $5 million fine figure. They noted that the FCC did not cite any consumer complaints about the marketing of the calling cards. The FCC also didn’t identify any specific sales of the cards as violations in its calculation of the fine.

“The order rests on unsupported assumptions and provides not a single fact to support its findings or its forfeiture calculation,” the Locus petition said. “Nowhere does the FCC identify a single sale of a specific card that included deceptive language, or a single customer that complained or was actually deceived or harmed by the investigated marketing practices.”

Some of the challenges raised by the companies echo those raised by Republican Commissioners Ajit Pai and Michael O’Rielly, who dissented from the final forfeiture order.

“Two of the five commissioners already said they didn’t think this commission action was justified,” Augustino said. “And so what the reconsideration points out is significant areas where we think the majority’s analysis was lacking and that upon reconsideration of that, we think a majority of the commission will see that these fines were not justified.”

Pai said there was no coherent explanation for the $5 million fine. He also voiced his concerns in his written testimony for a hearing before the House Subcommittee on Communications and Technology last week.

“Although the companies’ conduct was shameful, the agency’s authority to impose forfeitures was fatally compromised by its own inadequate and incomplete investigation — one that failed, among other things, to specifically identify even a single purchase of a prepaid calling card, as required by the Communications Act,” Pai said in the written testimony.

In his dissent to the forfeiture order, O’Rielly warned that the commission’s interpretation of Section 201(b) could have far-reaching consequences. Marashlian agreed.

“This is a slippery slope,” Marashlian said. “If the commission is going to give itself the authority to regulate marketing practices … what happens in the context of an ISP that is now subject to common carrier regulation?”

An FCC spokesman declined comment.

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